Situated along crucial sea shipping routes on the southern edge of the South China Sea, Brunei Darussalam is well placed to take advantage of growing trade within the region. This geographical advantage and Brunei Darussalam’s membership in ASEAN and inclusion in multi-party trade agreements like the Trans-Pacific Partnership (TPP) are key components in the country’s aspirations of becoming a regional centre for trade. These ambitions are further bolstered by a strong multi-modal domestic transportation network that is undergoing substantial upgrades to its air, land and sea capacities.
By The Numbers
In order to continue upgrading the sector, the government allocated 19.7% of its national budget for 2014/15 towards communications and transportation projects as part of the 10th National Development Plan (NDP) 2012-17, as approved by the Legislative Council in March 2014. The BN$226.6m ($177.72m) allocation was the third largest in the budget and represents a significant increase on the BN$168.4m ($132.08m) earmarked for the sector to implement projects like roads, bridges and civil aviation in the 2013/14 budget. Spending on transportation and communication under the previous 9th NDP 2007-12 totalled BN$1.07bn ($839.20m) – 11.2% of total expenditures – not including specific earmarks for civil aviation (BN$114.53m, $89.83m), roads (BN$568.54m, $445.91m), and marine and ports projects (BN$26.75m, $20.98m), according to the Department of Economic Planning and Development (JPKE).
Airport
Visitors arriving by air will soon get a better first impression of the country once a complete refurbishment of Brunei Darussalam’s primary entry point, Brunei International Airport (BIA), is completed. Designed with an eye to aesthetics, services and security, the upgraded facility represents a significant improvement on the previous structure and will include features like expanded floor areas ( providing more retail and tourism-related space) and green features, as well as an improved security system via the installation of closed-circuit television cameras.
Initiated in 2011, the $150m project is being undertaken to support Brunei Darussalam’s aim of becoming an air logistics hub for the region, as well as to improve airport connectivity and increase flight frequencies and passenger traffic. Upon its scheduled completion at the end of 2014, BIA’s Terminal Modernisation Project will double the airport’s handling capacity from the previous level of 1.5m passengers to 3m passengers annually.
Further Reach
Looking to facilitate growth across a number of sectors such as tourism, trade and investment, the project has tapped the skills of experienced international firms, such as Changi Airports International and AECOM Asia, a Singapore-Hong Kong consortium. As of March 2014 roughly 60% of works had been completed, including the opening of the new arrival and departure halls and the new Gate 1 concourse in late 2013. A revamped, state-of-the-art baggage handling system and check-in counter were also introduced in the departure hall in early 2014, along with a 600-vehicle-capacity P1 parking lot. Various support infrastructure including 11 aerobridges, which will link the existing terminal with the new one, and new entrance and exit roads were under construction in mid-2014 as well. Aircraft parking will also be enhanced to cater to Code F aircraft, an improvement on the existing airport, which only caters to Code E aircraft. A new access control system will also be implemented for the whole terminal upon completion, and reconstruction and renovation of existing terminal buildings will create a unified theme for the entire airport.
Following the modernisation of the passenger terminals, the next upgrades at BIA will be the extension of the runway to allow for larger aircraft. In addition to the extended runway, more infrastructure will be added to ease aircraft movement on the ground, including additional taxiways and apron space, the construction of which is expected to be completed within two years.
National Carrier
These infrastructural upgrades are being carried out in conjunction with a strategic transformation of Brunei Darussalam’s flagship carrier, Royal Brunei Airlines (RB). In an increasingly competitive environment for international carriers, RB has opted to focus on the rapidly growing regional market rather than expand its long-haul capacity and compete head-to-head with other, larger international airlines. With the national airline’s capacity exceeding demand, RB has decided to consolidate and concentrate on higher-capacity regional routes utilising more fuel-efficient aircraft in order to maximise per seat revenue while cutting costs. Flights on high-demand routes to Kuala Lumpur, for instance, have been increased from five per week to twice daily – on par with flight frequency to Singapore. The carrier also announced in July 2014 that it was resuming services to Ho Chi Minh City (which were previously discontinued in 2011), with four weekly flights set to commence in October 2014.
Complementing these regional routes, RB will retain its smaller network of long-haul destinations to Dubai, London and Melbourne, each of which has strong economic ties to the Sultanate. A fourth long-haul route to Jeddah also operates seasonally in order to provide direct flights for Muslim travellers visiting Mecca during certain religious holidays, and the company is considering adding new routes to Brisbane, Perth and Darwin as well.
New Fleet
The airline has tailored the composition of its fleet to meet this new strategic position, acquiring four new Boeing 787 Dreamliners to operate long-haul routes, with a fifth 787 on order for delivery in 2018. Looking to the regional routes, RB has opted not to renew its lease on its aging fleet of four Airbus A320s and two A319s and has instead ordered seven new Airbus A320neo aircraft, which will provide greater fuel efficiency and range. The first of the Airbus planes is scheduled to be delivered in November 2017, followed by an additional aircraft each year until the order is filled. With this updated fleet, the airline will be able to extend its reach as far as North Asia and across the Indian subcontinent, opening the door for future potential flights to new destinations.
“Using these more fuel-efficient aircraft without having to incur wide-body aircraft costs means we have an extended range with a lot of options in North Asia and the Indian subcontinent, including Tokyo, Beijing, Seoul, Delhi, Taipei and Brisbane,” Karam Chand, the national carrier’s chief commercial and planning officer, told OBG.
RB is also hoping for a passenger boost generated by the tourism sector, for which it has developed a “two-city” vacation package. The promotion packages shorter stays in Brunei Darussalam – generally one to three nights – on an extended layover to third-country destinations, translating into multiple travel legs for the airline. Initially targeting the Chinese market, the carrier will roll out the package in conjunction with travel agents in China and target vacationers travelling from Hong Kong and Singapore to Bali in Indonesia.
Rising Challenge
In spite of this leaner, more efficient strategy now employed by RB, the airline must also face the challenge of upstart, low-cost carriers like Air Asia, Lion Air and Cebu Pacific. As their larger fleet capacities and no-frills approach allow them to offer cut-rate fares, RB and other major airlines are hard-pressed to match these prices and still turn a profit. Additionally, RB is further constrained by economies of scale due to the Sultanate’s relatively small population of around 400,000 and limited tourism draw, which reduce the number of inbound passengers. Whereas other major airports in the region may see 10m or even 20m arrivals in a year, Brunei Darussalam had 224,904 in 2013 and 209,108 the year before, according to JPKE data. The largest percentage of arrivals are tourists, totalling 86,599 individuals and comprising 38% of all travellers in 2013. This was followed by business travellers with 21%, transit (12%), family visits (11%), government business (9%) and exhibition attendees (1%), with the remainder (8%) travelling to Brunei Darussalam for unspecified or other reasons.
In addition to overhauling its passenger routes and aircraft, RB outsourced its cargo operations in May 2013 to Air Logistics Sdn Bhd (ALSB), a subsidiary of Air Logistics Group. Under the terms of the deal, ALSB manages cargo handling activities at all destinations on the RB network, while affording the airline considerably greater exposure and additional growth opportunities through ALSB’s sales and marketing operations in 71 offices around the world. In August 2014, just over a year into the arrangement with the global logistics firm, RB announced that it had seen 20% growth in its cargo business.
Free As A Bird
In the ASEAN Single Aviation Market – also known as ASEAN-SAM, or the “open skies” policy – RB faces both one of its strongest opportunities as well as one of its greatest challenges. A crucial part of ASEAN’s 2015 regional economic integration, ASEAN-SAM is intended to increase regional and domestic connectivity, integrate production networks and enhance regional trade by allowing airlines from ASEAN member states to fly freely throughout the region under a single, unified air transport market. Agreed to in 2008 by ASEAN member states, the market liberalisation is being carried out in phases referred to as “freedoms of the air”, which will eventually guarantee airlines the right to fly from a carrier’s home country to another and back, or fly between two foreign countries on trips that originate in the carrier’s country of origin. The third and fourth freedoms were enshrined in 2010, leaving the fifth freedom to be implemented in 2015, coinciding with the full integration of the ASEAN Economic Community, which is intended to eliminate most remaining trade restrictions within the bloc.
Although these policies are intended to be introduced by 2015, the exact schedule for full implementation was unclear as of August 2014 due to the reluctance of some members to fully comply. Some member nations have already ratified the first phase of ASEAN-SAM, which involves opening up capital city routes to all ASEAN-based airlines, while others are hesitant to endorse the second phase, which entails widening this to secondary cities. Indonesia and the Philippines, for instance, have voiced opposition to some of the components of the ASEAN-SAM agreement – namely relaxation of the third, fourth and fifth freedoms of the air.
Competition
While this undoubtedly provides new markets for RB to serve as the firm continues to expand its fleet, it also opens the door for larger regional airlines as well low-cost carriers to access the domestic market. As they both hold strong positions in terms of price competition (large airlines on the basis of greater resources and a larger passenger base, and low-cost carriers with cut-rate, no-frills efficiency), RB will need to compete in other areas, such as quality and service. “One of our concerns is that if and when low-cost carriers come to Brunei Darussalam, they will take a piece of the passenger pie, and in Brunei Darussalam it is very hard to grow the size of the pie,” RB’s Chand told OBG. “So we could be seriously impacted if there are more flights here from low-cost carriers.”
Spanning Wings
Although ASEAN-SAM will be a mixed bag for RB, the economic bloc’s Single Shipping Market is an important stepping stone in Brunei Darussalam’s ambition to become a regional cargo hub. Also targeted for implementation by 2015, a realistic timetable for full compliance remains unclear for now, as several countries in the region have heavily protected domestic shipping industries that could weaken or delay the policies.
If and when further liberalisation goes through, much of Brunei Darussalam’s shipping and logistics efforts will be focused on establishing the country as a hub for smaller feeder boats serving the Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN Growth Area (BIMP-EAGA) sub-region. This network includes smaller nations and regional capitals that could be overlooked by larger players, and would encompass the southern Philippine islands of Mindanao and Palawan, the holdings of Malaysia, Indonesia and the Sultanate on Borneo, as well as the eastern Indonesian island grouping including Sulawesi, Papua and Maluku.
Roads
Brunei Darussalam’s Public Works Department (PWD) administers the country’s road and highway network through its Department of Roads. The network consists of 2836 km of roadways, according to the PWD, while the JPKE puts the figure slightly higher at 3167 km. These include 2233 km of asphalt carriageways, 373 km of stone and 230 km of concrete. The vast majority of the country’s roads are located in the Brunei Darussalam-Muara District (1789 km), followed by Belait (441 km), Tutong (435 km) and Temburong (171 km).
The road network is also supported by 29 major roundabouts and 88 traffic light junctions. In order to further facilitate the efficient flow of traffic, some 30 new flyovers and exchanges are also being built. As of March 2014, eight flyovers were under construction, along with six in the tendering stage, four undergoing feasibility studies and another dozen in the planning stage, according to information provided by the Ministry of Development.
More Turf
The country’s four primary highways of Muara-Tutong, Sultan Hassanal Bolkiah, Tungku and Kuala Belait are being joined by the new 18. 6-km Telisai-Lumut Highway, which was wrapping up construction as of mid-2014. First begun in 2010 and estimated to cost a total of BN$138.78m ($108.85m), the new highway will provide an additional land artery serving traffic between Bandar Seri Begawan and Kuala Belait, as well as in the Sungai Liang area where the Sungai Liang Industrial Park is located. Other major road works initiated by the Department of Roads in recent years have included the Jerudong-Tungku road, the Tanah Jambu Link road, the second carriageway of the Seria Bypass, the flyover on Pengiran Babu Raja road, and the Berakas Interchange on the Muara-Tutong Highway.
Aided by the government’s ongoing road safety and awareness campaigns in recent years, road casualties have declined from 699 in 2011 to 510 in 2013, according to the JPKE. This was accompanied by a corresponding decline in traffic accidents from 3598 to 3338 over the same time period, while the number of fatalities dropped from 47 to 32.
Bridges
Another focus of the current development plan is to foster economic growth across the country by increasing land linkages between key areas within the Sultanate through the construction of three major bridges. By far the largest and most ambitious of these is the new Temburong Bridge, which will create the first road link between Brunei Darussalam-Muara District (starting at Jalan Penghubung Mentiri) and Temburong District ( ending at Jalan Labu), which is currently separated from the other three districts by Malaysian territory.
Construction on the project is expected to begin before the end of 2014 and will include dual three-lane carriageways, 14.5 km of cable-stayed bridges, as well as 11.8 km of a combination of dual-lane, at-grade roads and tunnels for a total length of 30 km.
Other linkages and support infrastructure will also be built, such as the 11.8-km Temburong road linking the new bridge to existing highways in Temburong and the Mentiri Tunnels and an interchange connecting the western end of the project to Jalan Utama Mentiri. The bridge construction will include provisions for future connections to the islands of Baru-Baru, Pepatan and Berambang as well.
Short Cuts
Slated for completion by 2018, the new link is vital for the development of Temburong and will be a step towards realising the planned Pan Borneo Highway that aims link Brunei Darussalam with its Borneo neighbours Malaysia and Indonesia. Once operational, travel between the two districts will take just 30-40 minutes, which is a significant improvement on the previous options requiring either a trip of one to two hours by boat or multiple border crossings via Sarawak on land.
The second major bridge being built will support industrial growth at the Pulau Muara Besar (PMB) industrial park. A tender for the 2.7-km bridge and 3-km-long road on PMB was issued by the government in early 2014, although construction on the project had yet to begin at the time of publication.
Construction of the third project was initiated in 2013 to build a new 607-metre, cable-stayed bridge spanning a water village between Kg Sungai Kebun in Lumapas and Jalan Residency in Bandar. Scheduled for completion in 2016, the Sungai Brunei Bridge is a two-lane carriageway with pedestrian walkways that will provide a more direct alternative route for commuters who previously had to drive around 30 km along Jalan Bengkurong-Masin and Jalan Tutong. According to the Department of Roads, roughly 18,000 vehicles make the trip daily in addition to the pedestrians served by water taxis.
Intermodal Connectivity
Many of these investments are being made to enhance the country’s capacity to handle growing volumes of air, sea and land traffic in terms of both passengers and cargo, and are intended to not only benefit local Bruneians, but also to increase the ease of movement of goods and people across borders. In fact, major infrastructure projects such as the BIA upgrade and the Muara Port improvements will boost cargo and passenger capacities far beyond current demand. While much of this excess capacity will not be used in the short term, it is hoped that the efficient intermodal infrastructure along other favourable investment factors will lure new manufacturing operations and larger shipping lines to the country. Under this chicken-and-egg scenario, the hope is that if cheap, efficient multi-modal transport options are available, logistics and industrial companies will move to establish operations in the Sultanate and eventually achieve their own profitable and self-sustaining momentum.
To succeed in this strategy, the government is relying on the advantages of its trade agreements to help streamline Customs and procedures and facilitate the movement of goods across borders. The ASEAN single window project, for instance, creates a unified platform for import and export operations, facilitating the process for making declarations and paying taxes, all of which reduce transit times and costs.
This could be particularly beneficial for Brunei Darussalam in terms of exporting goods produced in the Malaysian states of Sarawak and Sabah, especially if operations are located closer to the Brunei Darussalam border than to ports in their own provinces. These linkages are expected to be enhanced in the future through new cooperative projects, including the Trans-Borneo Railway (TBR) and the Trans-Borneo Bus Service (TBBS).
Laying The Tracks
The TBR is intended to provide the island’s first comprehensive railway, which will run along the coastline of Kalimantan, Sabah, Sarawak and Brunei Darussalam. The project will encompass a total rail network spanning 4440 km at an estimated cost of BN$20bn ($15.67bn), and is intended to provide a more efficient way to move freight between major urban centres and open up the hinterland for further exploitation of Borneo’s vast timber, coal and other natural resources.
Complimenting the flow of freight on the TBR, the TBBS focuses on the transportation of passengers and cargo across the entire BIMP-EAGA region. With an estimated price tag of BN$1bn ($784.3m), the enhanced bus service would create an affordable transportation network across the region by connecting existing ferry services from Sabah and the southern Philippines with other major population centres currently not employing roll-on, roll-off services.
Another key component of Brunei Darussalam’s plans to become a future logistics hub is the establishment of free trade zones (FTZ), which will allow goods to flow efficiently into and out of the country. The Sultanate’s first FTZ was established at Muara in the form of the Muara Export Zone (MEZ), located just outside the port perimeter, followed by a second FTZ at Sungai Liang. Managed by the Ports Authority, the MEZ offers shipping and logistics companies warehousing services, container movement and handling, and Customs procedures at the port.
Measuring Up
Decades of public investment in Brunei Darussalam’s transportation infrastructure have resulted in a network that compares favourably not only to its regional peers, but also to other, more developed countries around the globe. The Sultanate fared well in the infrastructure category in the World Economic Forum’s (WEF) “Global Competitiveness Report 2013-14”, scoring a 5.1 out of a possible 7 for a ranking of 39th out of the 148 participating economies in the report (see analysis). Within the Asian region, this placed Brunei Darussalam behind Hong Kong (ranked 2nd overall), Singapore (5th), South Korea (23rd), Malaysia (25th) and Taiwan (26th), but well ahead of Sri Lanka (54th), Thailand (61st), Lao (65th), China (74th) and Indonesia (82nd).
The WEF report, which ranks 189 economies in terms of the ease of doing business, also rated the Sultanate’s transportation and logistics sectors favourably. Brunei Darussalam ranked 39th out of 189 countries in terms of trading across borders, thanks to the total of five documents required for processing exports, an average of 19 days required to export and cost of $705 per exported container. For imports, the number of documents is the same at five, although it took slightly less time on average at 15 days and cost a bit more at $770 per imported container. At least some of the strong showing in Brunei Darussalam’s ranking is due to the implementation of the new e-Customs system, which is expected to improve over time as the process is further refined and the private sector adapts.
Outlook
Brunei Darussalam’s already impressive national transportation infrastructure is on track to become one of the more robust networks within the region as a handful of ongoing and planned upgrades increase its air, sea and land transportation capabilities. Far exceeding the Sultanate’s current demand for passenger and cargo traffic, these improvements will serve to ensure ample room for growth in the years to come. Further trade liberalisation within the ASEAN community, particularly the BIMP-EAGA region, should also support the country’s ambitions of establishing itself as a regional feeder port, while recent investments in the manufacturing sector will contribute to the nascent local export segment.
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